Market Update Q2 2016

The second quarter of 2016 delivered solid performance for Canadian equity and fixed-income investors, despite the late-quarter turmoil sparked by the U.K. vote to leave the EU. Our investment approach is predicated on guarding against volatility and unwelcome surprises, and the Brexit vote provided a rare opportunity to prepare for potentially bad news on a fixed date.

Naturally, our primary focus before the vote was on our international holdings, with a particular emphasis on our European holdings. We shared the consensus view that the remain campaign would narrowly win. But in keeping with our downside risk management bias, we elected to maintain our underweight positions in the British pound, the euro and European financial stocks. After the leave campaign victory, these were the hardest-hit currencies and stocks. Our positioning led to outperformance in many of our funds and pools.

Our Canadian and other non-European holdings were largely unaffected by Brexit. Canadian companies, on average, generate just 2% of revenue from the U.K. and approximately 7% from the EU. The primary drivers in the Canadian market were the ongoing gains seen in gold and oil in the second quarter. The U.S. market actually benefitted from the turmoil around Brexit as investors flocked to it based on its safe-haven status. Emerging markets were left mostly unscathed post-Brexit.